UBS Group released a report indicating that although Baidu-SW (09888 listed in hong kong) (BIDU.US) is considered fairly valued at a PE ratio of 8 times the forecast this year, and with the long-term potential of artificial intelligence and other innovative businesses, the continued pressure from the macroeconomic environment on its core operations is expected to cause short-term fluctuations in Baidu's stock price.

The bank expects Baidu's core advertising revenue in the third quarter to drop by 4.5% year-on-year, compared to a 2.2% decrease in the second quarter, affected by challenging macro conditions and ongoing upgrades in artificial intelligence search. It believes that the combination of artificial intelligence search results will gradually increase, with continuous optimization in industry coverage, result accuracy, and models, encouraging user engagement, but commercialization will take time.

In terms of cloud business, the bank has lowered its quarterly revenue growth forecast by 4 percentage points, expecting a 14% year-on-year increase (previously expected an 18% increase), reflecting recent adjustments in the personal cloud business structure and affecting short-term monetization. The bank expects Baidu's core revenue in the third quarter to decline by 0.8% to 26.4 billion yuan. The non-GAAP operating profit margin is expected to contract to 24% year-on-year, influenced by unfavorable revenue mix changes and weakened core advertising profit margins.

The bank has lowered the target price for Baidu H shares from HK$139 to HK$132, and the ADR target price from $142 to $135, maintaining a 'buy' rating.